Guest Post: Andrew Scobie – You will pay the ferryman

Australian Treasury boss Martin Parkinson’s recent call for states to solve their financial problem with an increase to Payroll Tax is wrong on so many levels. It does however highlight three things impacting on Australia’s international competitiveness.

The Federal Government has a complete inability to drive real reform of taxation to increase Australian productivity, as opposed to redistribution from the productive economy. Glenn Stevens has long expressed the view that Australia may do ok in rough weather but it has risked wasting its comparative advantage in good times. Politically motivated chair shuffling has now seen two full terms of avoidance at a time when we needed our best efforts. Today Shane Oliver Head of Investment Strategy and Chief Economist at AMP Capital said “problem is tax rises will only damage productivity. Need a new round of supply side reforms focussed on less tax, deregulation and less government.”

It can only be assumed that Treasury is viewing the merits of Payroll Tax through milk bottle lenses of their undergraduate text books. For theoretically, a universally applied threshold free Payroll Tax would be reasonably efficient, and marginally less distortional than a post Presidential debate press release. In real life there isn’t a state Treasury that has seen a payroll tax like that since Sir Henry Parkes ran the game. Instead, Payroll Tax has a threshold with the habits of a Kings Cross night shift worker. Application of exemptions, thresholds, and rates impose costs on job creation and the cost of doing business.

At a time the Federal and State policy makers should be keenly focused on productivity, competitiveness and minimising the impact of the ‘Structural adjustment we have to have’ we appear to be advocating a tax which imposts employment and encourages investment in capital in the productivity equation for anyone running a business. Perhaps Treasury holds the view that increasing tax on employment will hasten structural adjustment consistent with their private view on the impact of carbon tax.

If as Say’s Law makes clear ‘supply creates demand’ why would we be advocating an increase in a tax on production and employment. Surely Shane Oliver is right. It is time for a new reform agenda focussed on less tax, deregulation, and less Government at both a State and Federal level.

The real problem lies in the ever increasing size of the public sector which basically produces nothing, and hence cannot contribute to revenue. Hence it is necessary for the private sector to increase its share of the taxation to fund the public sector.

We also need to demolish the Marxist fallacy that labour adds value – or that labour is an ends rather than the means to an end. Until the trade unions are disabused of that fallacy, things can only become worse.

Australian Treasury boss Martin Parkinson’s recent call for states to solve their financial problem with an increase to Payroll Tax is wrong on so many levels. It does however highlight three things impacting on Australia’s international competitiveness.

It can only be assumed that Treasury is viewing the merits of Payroll Tax through milk bottle lenses of their undergraduate text books

Nice line, Andrew. (one of many throughout the article)
Payroll tax is now a part of the economic furniture. It’s something that the public are used to and have accepted.
However, people would notice if it went up. Very much. I would hazard a guess that increasing payroll tax would be politically suicidal.

The present government is governing for the benefit of its own longevity by satisficing; that is, aiming to cobble together plausible-sounding policy that appeals to its constituency (or perceived constituencies) rather than delivering something that is optimum for greater Australia. In practice this means picking up the random asks of the unions, the Greens, ‘independents’ and whatever seems hot on Facebook – and stitching it all together in an economic environment they either don’t understand, or are persuaded to ignore by their advisers.

The reality is that ‘productivity’ generally means a transfer of utility away from an influential part of Labor’s constituency – this includes unions, regulators and rent seekers who benefit from interventionist, inchoate government programs.

So no surprise then that, when growth is desperately needed, Treasury is in turn satisficing Government by providing taxing proposals rather than supply side solutions that might actually work, but have no chance of being applied.

Dont suppose there is anyone in here willing to suggest demanbd creates supply?? Who says Say had his law so right?

Economics is littered nwith the corpses of bad laws and economics has been likened to better than walking talking weapons of mass destruction (good for the army but not for the rest of us in peace time).

Yeah yeah but you can subscxribe to Say’s law if you want to.

What a stupid argument anyway. Does supply create demand or demand create supply. Every fibre of a sensible persons being would suggest it was the latter, not the former.

no buyers? = No product to sell or do we really suggest in here that people hawk unsaleable supply to an unwilling market and try to flog and thats all that needs to be done.